FMC Issues Final Rule on NVOCC Service Arrangements

This final rule takes effect on January 19, 2005. Once it is in effect, it will allow NVOCCs and their affiliates to offer NVOCC Service Arrangements (NSAs) to their shipper customers. NVOCCs will be permitted to agree, on a confidential basis, with their shipper customers on the terms and conditions of service. In addition, cargo moved under NSAs will be exempt from the tariff publication requirements of the Shipping Act.

Highlights of Changes Made to Final Version of NSA Rule

The following are highlights of the differences between this final rule and the October 2004 proposed rule (partial list):

FMC to allow participation of affiliates to NSA signatory parties. In the preamble to the final rule, the FMC states that it has decided to allow the participation of affiliates to the NSA signatory parties, and as a result the following provisions are added to or changed from the proposed rule:

Definition of "affiliate" added. In the final rule, the FMC has added a definition of "affiliate" at 46 CFR 531.3(b), which reads:

"Affiliate means two or more entities which are under common ownership or control by reason of being parent or subsidiary or entities associated with, under common control with, or otherwise related to each other through common stock ownership or common directors or officers."

Definition of NSA. The FMC final rule added text to the proposed definition of "NVOCC Service Arrangement ("NSA")" at 46 CFR 531.3(p) (added text is between ""):

NVOCC Service Arrangement ("NSA") means a written contract, other than a bill of lading or receipt, between one or more NSA shippers and an individual NVOCC or two or more affiliated NVOCCs, in which the NSA shipper makes a commitment to provide a certain minimum quantity or portion of its cargo or freight revenue over a fixed time period, and the NVOCC commits to a certain rate or rate schedule and a defined service level. The NSA may also specify provisions in the event of nonperformance on the part of any party.

NSA filing requirements. The final rule added text regarding affiliate filing requirements to the proposed text of 46 CFR 531.6(b)(9) (added text is between ""):

The legal names and business addresses of the NSA parties; the legal names of all affiliates of the NSA shipper entitled to access the NSA; the names, titles and addresses of the representatives signing the NSA for the parties, except that in the case of an NSA entered into by a shippers' association, individual members need not be named unless the contract includes or excludes specific members; and the date upon which the NSA was signed. Subsequent references in the NSA to the signatory parties shall be consistent with the first reference. An NVOCC party which enters into an NSA that includes affiliates must either:

list the affiliates' business addresses; or

certify that this information will be provided to the FMC upon request within ten (10) business days of such request.

Regulations for correcting NSAs reorganized. The final rule has reorganized the regulations at 46 CFR 531.8(b) concerning the correction of NSAs.

(See ITT's Online Archives or 11/05/04 news, 04110530, for Part IV of BP's summary of the proposed rule in which FMC sources noted that 46 CFR 531.8(b) could need to be reorganized.)

Final rule contains new set of end notes. The ends notes contained in this final rule have been completely changed from those contained in the proposed rule. Among other end notes, 5 states that Commissioner Brennan issued the following statement: I strongly support the concept of allowing NVOCCs to offer confidential contracts. I voted against the draft final rule because it does not go far enough. For example, the exemption does not allow shippers' associations, which are often made up of small and medium-sized shippers, to use confidential contracts unless the association excludes an NVO member of the association.

FMC form. The final rule contains a copy of Form FMC-78, NVOCC Service Arrangement Registration. In the final rule, this form contains an expiration date of May 31, 2005 and a complete OMB No. of 3072-0067. Otherwise, FMC-78 remains unchanged from the proposed rule.

(In addition, in the preamble the FMC noted that at this time, it has determined not to extend the definition of NSAs to include arrangements between two NVOCCs, whether individually or acting in concert through a shippers' association, due to the potential that they may include activities considered per se anti-competitive under the Sherman Act (15 USC 1). According to the FMC, the lack of oversight over the competitive impacts of activities undertaken through NSAs may lead to the substantial reduction in competition that section 16 prohibits.

As such, the FMC finds that at this time it must limit the exemption as set forth in the proposed rule. However, in accordance with the recommendations of certain commenters, the FMC notes that as it gains further experience regarding the practical effects of the exemption, and as the courts assess the scope of the antitrust immunity the Shipping Act grants, the FMC will continue to consider whether there are other means to ensure NSAs meet the criteria of section 16 of the Shipping Act.)

(See ITT's Online Archives or 11/09/04 news, 04110920, for Part IV of BP's summary of the proposed rule, which describes FMC-78, as proposed.)

(See ITT's Online Archives or 11/01/04, 11/02/04, 11/03/04, 11/05/04, 11/08/04, and 11/09/04 news, 04110105, 04110215, 04110310, 04110530, 04110825, and 04110920, for Parts I-VI of BP's summary of the proposed rule.)

FMC Contact - Amy Larson (202) 523-5740

FMC Final Rule (D/N 04-12, served December 15, 2004) available at http://www.fmc.gov/Dockets/04-12%20FINAL%20RULE%20(2).htm